BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 11/2012:
A DSGE-Based Assessment of Nonlinear Loan-to-Value Policies: Evidence from Hong Kong
Michael Funke ()
and Michael Paetz
Abstract: In the wake of the 2008-2009 global financial crisis, the
macroeconomic discussion has returned to the topic of proactive
macroprudential policies. One proactive approach, the use of loan-to-value
(LTV) policies to curb booming property markets, has long been used by Hong
Kong’s monetary authorities to actively manage and mitigate the potential
fallout from housing price bubbles. Here, we analyse the merits of this
countercyclical macroprudential policy in a New Keynesian DSGE model. We
conclude that nonlinear LTV policy rules implemented in reaction to
episodes of high property price inflation can limit transmission of housing
price cycle effects to the real economy.
Keywords: macroprudential policy; DSGE model; loan-to-value ratio; Hong Kong; (follow links to similar papers)
JEL-Codes: C63; E21; E32; E69; F41; (follow links to similar papers)
26 pages, May 2, 2012
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